3) a) PSG Motor Cars Co (PSG) manufactures a range of motor cars, and its year end is 30 June 2020. You are the assistant audit manager of Intermiami & Co and are currently preparing the audit programmes for the year-end audit of PSG. You have had a meeting with your audit manager, and he has notified you of the following issues identified during the audit risk assessment process:

Land and buildings

PSG has a policy of revaluing land and buildings; this is undertaken on a rolling basis over a five-year period. During the year PSG requested an external independent valuer to revalue a number of properties, including a warehouse purchased in January 2020. Depreciation is charged on a straight-line basis.

Work in progress

PSG undertakes continuous production of cars, 24 hours a day, seven days a week. An inventory count is to be undertaken at the year end and Intermiami & Co will attend. You are responsible for the audit of work in progress (WIP) and will be part of the team attending the count as well as the final audit. WIP constitutes the partly assembled cars at the year end and this balance is likely to be material. PSG values WIP according to percentage of completion, and standard costs are then applied to these percentages.

Describe the substantive audit procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to:

(i) The revaluation of land and buildings and the recently purchased warehouse; and (5 marks)

(ii) The valuation of work in progress. (4 marks)

3) b) During the audit, the team has identified the following errors: profit before tax for PSG is estimated at $3,000,000 for the year ended June 30, 2020,

i. An error of $3,000 was found in the audit of depreciation expense of the warehouse purchased in January 2020. The management of PSG have indicated that they do not wish to amend the financial statements.

ii. An error of $350,000 in the valuation of work in progress was found as a number of the assumptions contain out of date information. The management of PSG have indicated that they do not wish to amend the financial statements.

Calculate Performance Materiality and utilize this to discuss the appropriate treatment of the above two errors.

Note: The marks will be split equally between each part